| Mon 29 Nov 2010, 8:00 | | MSM - Joint announcement of a firm intention by Walmart to make an offer to |
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MSM
MSM
MSM - Joint announcement of a firm intention by Walmart to make an offer to
acquire 51% of the ordinary share capital of Massmart on the basis set out in
this announcement and withdrawal of cautionary announcement
Massmart Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number 1940/014066/06
Share code: MSM
ISIN: ZAE000029534
("Massmart" or "the Company")
Wal-Mart Stores, Inc
Incorporated in the State of Delaware United States of America
Traded on the New York Stock Exchange under the symbol "WMT"
Acting through its indirect wholly-owned subsidiary
Main Street 830 (Proprietary) Limited
Registration number 2010/016839/07
("Walmart")
JOINT ANNOUNCEMENT OF A FIRM INTENTION BY WALMART TO MAKE AN OFFER TO ACQUIRE
51% OF THE ORDINARY SHARE CAPITAL OF MASSMART ON THE BASIS SET OUT IN THIS
ANNOUNCEMENT AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. EXECUTIVE SUMMARY*
- The boards of directors of Massmart and Walmart are pleased to
announce the terms of a recommended cash offer to be made by
Walmart to acquire:
* 51% of Massmart ordinary shares, equivalent to 51 out of every
100 Massmart ordinary shares held, (excluding the Excluded
Shares), by way of a scheme of arrangement; and
* 51% of the total entitlement to Massmart ordinary shares
beneficially owned by the beneficiaries of the Employee Share
Trust, the Thuthukani Trust and the BSS Trust, whether vested
or unvested, restricted or unrestricted, by way of Private
Treaty Agreements
- Under the terms of the Offer, Massmart shareholders will receive
R148.00 in cash per Massmart ordinary share sold to Walmart
- The Offer Consideration represents a premium of approximately 19.2%
to the volume weighted average price per Massmart ordinary share
for the 30 days up to and including 23 September 2010, being the
last business day immediately prior to the date of the first
cautionary announcement
- Massmart, following the implementation of the Offer, will remain
listed on the JSE
- The Massmart board has appointed Morgan Stanley as its independent
financial advisor in terms of the SRP Code to consider the terms of
the Offer and opine on whether or not the Offer is fair from a
financial point of view to the holders of Massmart ordinary shares
and the beneficiaries of the Employee Share Trust, the Thuthukani
Trust, and the BSS Trust
- Morgan Stanley has indicated that in its view the Offer is fair
from a financial point of view
- Accordingly, the Massmart board has resolved to support and to
facilitate the Offer and the Substitute Offer, if made (subject to
receiving a favourable fairness opinion in relation to the
Substitute Offer) and therefore is recommending to Massmart
shareholders that they vote in favour of all resolutions required
to implement the Offer
- Walmart has received irrevocable undertakings from certain
institutional shareholders to vote in favour of, or to recommend to
their clients to vote in favour of, the Offer in respect of
Massmart ordinary shares representing approximately 35.2% of the
existing issued ordinary share capital of Massmart. Walmart has
also received non-binding letters in support of the Offer from
other institutional shareholders in respect of Massmart ordinary
shares representing approximately 15% of Massmart`s existing issued
ordinary share capital
*The definitions and interpretations used in this announcement apply to the
Executive Summary section of this announcement.
2. INTRODUCTION
Further to the cautionary announcements published by Massmart on 27 September
2010 and 28 October 2010, Massmart shareholders are advised that Walmart has
delivered to the Massmart board of directors ("the Massmart board") notice of
its firm intention ("firm intention letter") to make four inter-conditional
offers to acquire, subject to the conditions set out in paragraph 4 below:
2.1 51% of the total issued ordinary share capital of Massmart ("Massmart
ordinary shares"), being 51 out of every 100 Massmart ordinary shares
held (subject to rounding), from the holders of Massmart ordinary shares
registered as such on the record date of the Scheme ("the Scheme Record
Date") ("the Scheme Shares") by way of a scheme of arrangement in terms
of section 311 of the Companies Act, 1973 as amended ("the Companies
Act") to be proposed by Walmart between Massmart and the holders of
Massmart ordinary shares ("the Scheme") but specifically excluding any
Massmart ordinary shares beneficially owned by:
- the Massmart Holdings Limited Employee Share Trust ("Employee Share
Trust");
- the holders of options under the Employee Share Trust ("ESOP Option
Holders") as a consequence of the implementation of the provisions
of the ESOP Addendum, as defined in paragraph 4.7 below (being the
Massmart ordinary shares resulting from the exercise of 51% of both
vested and unvested options) ("the ESOP Shares");
- the beneficiaries of the Thuthukani Empowerment Trust ("Thuthukani
Trust") ("the Thuthukani Beneficiaries") (which holds the Massmart
"A" convertible redeemable non-cumulative participating preference
shares of 1 cent each in the issued share capital of Massmart
("Massmart "A" preference shares")) as a consequence of the
implementation of the provisions of the Thuthukani Addendum (as
defined in paragraph 4.7 below) (being the Massmart ordinary shares
resulting from the deemed election to accelerate 51% of the vested
and unvested allocation balance of the Thuthukani Beneficiaries)
("the Thuthukani Shares"); and
- the beneficiaries of the Black Scarce Skills Trust ("BSS Trust")
("the BSST Beneficiaries") (which holds the Massmart "B" convertible
redeemable non-cumulative preference shares of 1 cent each in the
issued share capital of Massmart ("Massmart "B" preference shares"))
as a consequence of the implementation of the provisions of the BSST
Addendum (as defined in paragraph 4.7 below) (being the Massmart
ordinary shares resulting from the exercise of 51% of the vested and
unvested allocation balance of the BSST Beneficiaries) ("the BSST
Shares");
(collectively "the Excluded Shares"); and
2.2 all of the ESOP Shares, the Thuthukani Shares and the BSST Shares by way
of three private treaty agreements as further detailed in paragraphs 4.8
and 5.2 below;
(collectively "the Offer").
The Offer will be made at a cash price of R148.00 per Massmart ordinary
share to be acquired by Walmart ("the Offer Consideration").
The Offer is being made on the basis that, other than in the ordinary
course of its business, Massmart will not declare or pay any dividends or
declare or make any other distributions to the holders of ordinary and
preference shares between 25 November 2010 and the operative date of the
Scheme. Massmart shall be entitled to declare and pay an ordinary
interim dividend for the six months ending December 2010, at levels
consistent with prior years, on or after 14 March 2011.
The listing of Massmart`s ordinary shares on the securities exchange
operated by JSE Limited ("the JSE") will continue, with trading and
settlement taking place under a new International Securities
Identification Number ("ISIN"), with effect from the commencement of
business on the first business day following the last day to trade in
order to participate in the Scheme. It is expected that Massmart will
remain a constituent of the MSCI Emerging Market and FTSE JSE Top 40
Indices.
Should the South Gauteng division of the High Court of South Africa ("the
Court") refuse to convene the Scheme meeting, or if the Scheme fails for
any reason other than as a result of failure to receive of a regulatory
approval (as contemplated in paragraph 4 below), Walmart shall be
entitled (at its discretion) to make a substitute offer to holders of
Massmart ordinary shares (excluding the Excluded Shares) by way of a
general offer and which will incorporate an appropriate offer to the ESOP
Option Holders, the Thuthukani Beneficiaries and the BSST Beneficiaries
("the Substitute Offer").
The firm intention letter has been countersigned by the Massmart board
and no variation or amendment thereof will be binding unless reduced to
writing and signed by Massmart and Walmart.
3. STRATEGIC RATIONALE
3.1 Walmart`s rationale for the transaction
The Offer is in line with Walmart`s strategy to grow its international
business by increasing its exposure to emerging markets with high growth
potential. Walmart`s core proposition is to save people money so they
can live better, and this proposition has a strong appeal to consumers in
emerging markets. Therefore, South Africa presents a compelling growth
opportunity for Walmart and offers a platform for expansion into the rest
of Africa.
Within the South African market, Walmart sees Massmart as an ideal entry
point into the region and a strategic fit with Walmart`s global
organisation. Walmart is attracted to Massmart`s talented management
team, cultural fit with Walmart, expertise in general merchandise, strong
food and consumables business, multi-format capability, and strong
regional knowledge and experience.
3.2 Benefits to Massmart shareholders
The Offer has the dual benefit of allowing Massmart shareholders the
opportunity to realise an attractive premium on part of their investment
at R148.00 per Massmart ordinary share in cash while affording them the
opportunity to participate in the future value of the Massmart ordinary
shares that remain listed on the JSE.
The Massmart board believes that partnering with Walmart will assist
Massmart in delivering its strategic vision of being the leading African
retailer and thereby create significant value for Massmart shareholders
over the long-term.
As the largest retailer in the world, Walmart is renowned for its
operating, retailing, marketing and merchandising skills and its leading
edge procurement and supply chain capabilities developed over many years
of investing and trading across developed and developing countries. The
Massmart board is confident that, with Walmart as a major partner,
Massmart`s organic growth prospects will accelerate and that overall
execution risk of major initiatives will decline.
Access to Walmart`s experience and capabilities is expected to enable
Massmart to implement its growth strategy more effectively and
efficiently. Although the intention is that Walmart will not
fundamentally change Massmart`s current growth strategy, it will provide
support and assistance to Massmart to enable it to implement its strategy
with full effect.
The boards of directors of Massmart and Walmart believe that the proposed
transaction will create significant incremental value in the Massmart
business through a combination of buying efficiencies, intellectual
property, information systems, as well as technical, consulting and other
support services.
3.3 Benefits to consumers, employees, suppliers and communities
The proposed transaction contemplated in this announcement is expected to
result in benefits to consumers, employees, suppliers and communities.
Walmart`s core proposition, as previously stated, is to save people money
so they can live better. It is therefore anticipated that the proposed
transaction will bring tangible benefits to consumers in South Africa and
increasingly the rest of Africa. Walmart has extensive global experience
and capabilities relating to general merchandise, fresh food and grocery
retailing. By gaining access to Walmart`s experience and capabilities
relating to procurement and supply chain, particularly in relation to
fresh food retailing, Massmart will be able to deliver a wider selection
of quality products which are more consistently available to customers,
and access advice and support on how to leverage store design
capabilities to provide an even better consumer experience.
Walmart is expected to benefit local suppliers in South Africa by
continuing Massmart`s practice of sourcing a significant portion of the
products for its South African operations from local suppliers. Walmart
also believes that by sourcing products directly from local farmers and
suppliers will enable them to build direct, transparent relationships
with Walmart. Walmart currently provides skills training to assist local
producers to become more profitable, including advice on crop management
and harvesting, as well as producing, sourcing and packaging.
Furthermore, the transaction is expected to generate workforce benefits,
thereby facilitating the broader socio-economic imperatives of job-
creation and transformation in the South African retail sector. In this
context, Walmart is aware and fully supportive of Massmart`s Broad-Based
Black Economic Empowerment programme and expects to continue to build on
these efforts. Walmart also intends to work diligently with appropriate
parties to grow skills and further socio-economic development
initiatives. It is Walmart`s policy to invest in skills development and
technical training for its employees in all of the countries where it
operates. This policy generally results in a better-skilled workforce and
increasing possible career opportunities for employees.
The communities within which Massmart operates will continue to benefit
from Massmart`s recognised socially accountable behaviour, further
enhanced by Massmart`s access to Walmart`s innovative social investment
programmes including local initiatives focused on education and skills
training and sustainable agriculture as well as global efforts addressing
environmental sustainability, hunger and women`s economic empowerment.
4. CONDITIONS PRECEDENT TO THE SCHEME
The offers to be made to each of the Massmart ordinary shareholders, the ESOP
Option Holders, the Thuthukani Beneficiaries and the BSST Beneficiaries as set
out in paragraphs 2.1 and 2.2 above, are inter-conditional (subject to the
waiver provisions below).
The Scheme will be subject to the fulfilment or, where applicable, waiver of
the following conditions precedent ("Scheme Conditions"), which must be
fulfilled by no later than six months after the date of posting of the
circular to Massmart shareholders ("Scheme circular"):
4.1 the Scheme having been approved by a requisite 75% majority of Massmart
ordinary shareholders at the Scheme meeting present in person or by
proxy, the Scheme being sanctioned by the Court and the order of Court
sanctioning the Scheme being registered with the Registrar of Companies;
4.2 the receipt of regulatory approvals, to the extent required by law, in
relation to the Offer and the Substitute Offer (if made), from all
applicable regulators in South Africa and in any other country in which
Massmart operates, including without limitation, the JSE, the Securities
Regulation Panel ("SRP"), the competition authorities established under
the (South African) Competition Act, 89 of 1998, and the Financial
Surveillance Department of the South African Reserve Bank;
4.3 from the date of the firm intention letter referred to above until 17h00
(SA time) on the business day immediately preceding the finalisation date
of the Scheme, no material adverse change having arisen in the business
of Massmart. "Material adverse change" shall mean an adverse effect,
fact, circumstance or any potential adverse effect, fact or circumstance
which has arisen or occurred, or might reasonably be expected to arise or
occur and which is or might reasonably be expected (alone or together
with any other such actual or potential adverse effect, fact or
circumstance) to be material with regard to the business, condition,
assets, liabilities, operations, financial performance, net income and
prospects of Massmart and/or any member of its group (whether as a
consequence of the Offer or not); and/or any restrictive covenant or
covenants or similar provision entered into by Massmart or any member of
its group which may materially reduce the actual or potential value of
Massmart or its group. To be "material" there should be an adverse impact
of no less than R1.5 billion upon the value or potential value of
Massmart and/or its group, as the case may be or, if the adverse impact
is upon Massmart`s consolidated earnings before interest, tax,
depreciation and amortisation (EBITDA), it shall be no less than 5% of
the said EBITDA when measured against Massmart`s 2010 EBITDA numbers.
For the purposes of this definition, "value" shall include the value of
assets and/or revenues and/or reserves without double counting where a
single matter affects more than one measure of value;
4.4 where such consent is necessary, the consent for the proposed transaction
contemplated in this announcement being obtained from the relevant
counterparties to certain key contracts, as identified by Walmart during
the due diligence review conducted by Walmart on the Massmart group.
These consents relate primarily to "change of ownership" clauses in
property leases, certain banking facilities and certain commercial
agreements, which clauses are usual for agreements of that nature;
4.5 the approval by the holders of Massmart ordinary and preference shares of
all resolutions required to successfully implement the Offer or the
Substitute Offer (if made), including but not limited to the Whitewash
Resolution (as defined in paragraph 5.4 below) and the resolution
approving the execution of the ESOP Addendum (as defined in paragraph 4.7
below);
4.6 the SRP (a) accepting the Whitewash Resolution and waiving the
requirements of Rule 8 of the Securities Regulation Code on Takeovers and
Mergers ("SRP Code") relating to the obligation for Walmart to make a
mandatory offer to acquire shares in Massmart held by Massmart`s minority
shareholders; and (b) approving the offers to be made to the holders of
the ESOP Shares, the Thuthukani Shares and BSST Shares;
4.7 the execution of the deeds of amendment to each of the ESOP Trust Deed
("ESOP Addendum"), the Thuthukani Trust Deed ("Thuthukani Addendum"), the
BSS Trust Deed ("BSST Addendum") and same becoming unconditional (save
for any condition referring to the Scheme becoming unconditional); and
each of (a) the SRP and (b) the trustees of each of the Employee Share
Trust, the Thuthukani Trust and the BSS Trust agreeing in writing that no
offer is required to be made by Walmart in respect of (i) the ordinary
shares beneficially owned by the Employee Share Trust; (ii) options
outstanding which are not exercised following the implementation of the
provisions of the ESOP Addendum; (iii) the Massmart "A" preference
shares; and (iv) the Massmart "B" preference shares (as applicable);
4.8 each of the agreements between (i) the trustees of the Employee Share
Trust and Walmart; (ii) the trustees of the Thuthukani Trust and Walmart;
and (iii) the trustees of the BSS Trust and Walmart ("the Private Treaty
Agreements") having been entered into by all parties thereto and becoming
unconditional (save for any condition referring to the Scheme becoming
unconditional); and
4.9 each of the inter-company agreements (referred to in paragraph 9) between
Massmart and Walmart having been entered into by all parties thereto.
Walmart will be entitled to extend the date of fulfilment of any of the
Scheme Conditions by 90 days in its own discretion upon written notice to
that effect to Massmart, but shall not be entitled to extend the date to
a date later than the aforesaid 90 day period, without the prior written
consent of Massmart.
Walmart will be entitled to waive in its discretion any of the Scheme
Conditions upon written notice to the Massmart board prior to the date
for fulfilment of the relevant Scheme Condition, provided that any waiver
of the Scheme Condition recorded in paragraph 4.8 will require consent
from the Massmart board.
5. PROPOSED MECHANICS OF THE OFFER AND CONTINUED LISTING OF MASSMART ON THE
JSE
The Offer will constitute an "affected transaction" as defined in section
440A(1) of the Companies Act and will be implemented as detailed below.
5.1 Massmart ordinary shareholders
5.1.1 The Scheme
The Offer in relation to the Scheme Shares will be implemented by way of
the Scheme. Subject to the Scheme becoming operative, holders of Massmart
ordinary shares on the Scheme Record Date (other than those holding the
Excluded Shares) will be deemed to have disposed of their Scheme Shares
in exchange for payment by Walmart of the aggregate Offer Consideration
to Massmart. Massmart will administer and effect payment of the Offer
Consideration to the scheme participants.
Massmart ordinary shareholders will retain the balance of their Massmart
ordinary shares, representing 49% of their shareholdings in Massmart
ordinary shares on the Scheme Record Date (subject to rounding).
5.1.2 The Substitute Offer
Should the Scheme not be proposed or if the Court refuses to convene the
Scheme meeting, or if the Scheme fails other than as a result of failure
of a regulatory Scheme Condition, Walmart shall be entitled to make the
Substitute Offer to the Massmart shareholders to acquire the Massmart
ordinary shares (excluding the Excluded Shares) by way of a general offer
in terms of Chapter XVA of the Companies Act on the same terms and
conditions, mutatis mutandis, as the Scheme. The Substitute Offer will
be conditional upon the Scheme Conditions set out in paragraphs 4.2 to
4.9 above, and additional conditions precedent that (i) an independent
financial advisor appointed by the Massmart board forms a view that that
Substitute Offer is fair from a financial point of view to holders of
Massmart ordinary shares, the beneficiaries of the Employee Share Trust,
the Thuthukani Beneficiaries and the BSST Beneficiaries and (ii) holders
of Massmart ordinary shares tender that number of Massmart ordinary
shares which would result in Walmart holding 51% of the Massmart ordinary
shares after the implementation of the Substitute Offer. Should Walmart
elect to make the Substitute Offer, an appropriate offer will be extended
to the beneficiaries of the Employee Share Trust, the Thuthukani
Beneficiaries and the BSST Beneficiaries on the same basis as
contemplated in paragraphs 5.2.1, 5.2.2 and 5.2.3 of this announcement.
If the Substitute Offer is made, all holders of Massmart ordinary shares
will be able to tender all or any lesser number of their Massmart
ordinary shares, but Walmart will only be obliged to accept tenders that
will cause it to acquire 51% of the issued ordinary share capital of
Massmart after the implementation of the Substitute Offer. Any Massmart
ordinary shares tendered by holders of Massmart ordinary shares not
accepted by Walmart will be returned to the relevant holders of the
Massmart ordinary shares following the record date of the Substitute
Offer. The shares tendered will be accepted on a pro rata basis and all
holders will be treated equally.
5.2 Beneficiaries of the Massmart share trusts
In terms of the Offer, the ESOP Option Holders, Thuthukani Beneficiaries
and BSST Beneficiaries will be treated equally to Scheme participants in
terms of the SRP Code and shall receive the same price per ordinary share
as the Scheme participants. The details of the appropriate offers are
set out below.
5.2.1 Employee Share Trust
There are two types of beneficiaries under the Employee Share Trust, (i)
beneficiaries who are registered holders of Massmart ordinary shares
("ESOP Shareholders") and (ii) the ESOP Option Holders.
5.2.1.1 ESOP Shareholders
ESOP Shareholders who hold unrestricted rights to sell their Massmart
ordinary shares shall, subject to the Scheme becoming unconditional,
become Scheme participants in respect of 51 of their Massmart ordinary
shares for every 100 held (subject to rounding) on the Scheme Record
Date.
ESOP Shareholders who are restricted from selling their Massmart ordinary
shares shall, in terms of a resolution passed by the Massmart board and
subject to the Scheme becoming unconditional, have the lock-in periods
attaching to their Massmart ordinary shares amended to allow such ESOP
Shareholders to release 51% of all their Massmart ordinary shares. This
release shall occur such that the restricted ESOP Shareholders shall be
Scheme participants and sell the released portion of their Massmart
ordinary shares in the Scheme.
5.2.1.2 ESOP Option Holders
Pursuant to the ESOP Addendum, the Massmart board and the trustees of the
Employee Share Trust shall agree that, provided the Scheme becomes
unconditional:
- ESOP Option Holders who have vested rights and are able to exercise
their options ("vested ESOP Option Holders") shall be deemed to have
exercised 51% of all their vested options as at the finalisation
date of the Scheme;
- ESOP Option Holders who have unvested rights and are not yet
entitled to exercise their options shall be deemed to have
accelerated and exercised 51% of all their unvested options as at
the finalisation date of the Scheme; and
- the ESOP Option Holders shall be obliged to accept the offer by
Walmart to acquire all of the ESOP Shares ("the ESOP Offer").
Any vested ESOP Option Holder may also elect, as he or she is
currently entitled to do, to exercise his or her options prior to
the deemed exercise referred to above, such that he or she will
become a Scheme participant in the ordinary course.
Walmart will, in terms of the ESOP Offer, acquire the ESOP Shares on the
operative date of the Scheme at a purchase price per share equal to the
Offer Consideration. The terms of the ESOP Offer will be recorded in a
Private Treaty Agreement to be concluded between Walmart and the trustees
of the Employee Share Trust.
5.2.2 Thuthukani Trust
In terms of the Thuthukani Addendum and subject to the Scheme becoming
unconditional, the Thuthukani Beneficiaries will be deemed to have
elected to accelerate 51% of their vested and 51% of their unvested
allocation balance and to have accepted the offer by Walmart to acquire
the Thuthukani Shares ("the Thuthukani Offer"). Walmart will, in terms
of the Thuthukani Offer, acquire the Thuthukani Shares, on the operative
date of the Scheme at a purchase price per share equal to the Offer
Consideration. The terms of the Thuthukani Offer will be recorded in a
Private Treaty Agreement to be concluded between Walmart and the trustees
of the Thuthukani Trust.
In relation to Thuthukani Beneficiaries who have unvested rights, the
Massmart board shall pass a resolution to allow such Thuthukani
Beneficiaries, after the operative date of the Scheme, to transmit a
distribution notice at any time for all or part of their remaining
allocation balance, subject only to the trustees` prior consent, which
shall not be unreasonably withheld. It is noted for completeness that
the Massmart board has independently determined that the remainder of the
allocation balance of the Thuthukani Beneficiaries (ie 49%) will become
unrestricted subject to the Scheme becoming unconditional.
5.2.3 BSS Trust
In terms of the BSST Addendum and subject to the Scheme becoming
unconditional, the BSST Beneficiaries will be deemed to have elected to
accelerate 51% of their vested and 51% of their unvested allocation
balance and to have accepted the offer by Walmart to acquire the BSST
Shares ("the BSST Offer"). Walmart will, in terms of the BSST Offer,
acquire the BSST Shares, on the operative date of the Scheme at a
purchase price per share equal to the Offer Consideration. The terms of
the BSST Offer will be recorded in a Private Treaty Agreement to be
concluded between Walmart and the trustees of the BSS Trust. The
remainder of a beneficiaries` allocation balance (ie 49%) will be
unaffected.
5.2.4 Substitute Offer
Should Walmart elect to make the Substitute Offer, an appropriate offer
will be extended to the beneficiaries of the Employee Share Trust, the
Thuthukani Beneficiaries and the BSST Beneficiaries.
5.3 Listing of Massmart ordinary shares on the JSE
Application will be made to the JSE for the listing of the new Massmart
ordinary shares to be issued in terms of the implementation of the ESOP
Addendum and the issue of new Massmart ordinary shares as a consequence
of the conversion of the Massmart preference shares, as contemplated in
terms of the Thuthukani Addendum and the BSST Addendum.
5.4 Waiver of mandatory offer, including SRP waiver procedure
In terms of Rule 8 of the SRP Code an "affected transaction" requires a
mandatory offer to be made by Walmart in respect of all the Massmart
shares. In terms of Rule 8 of the SRP Code, the requirement for a
mandatory offer may be dispensed with by the SRP provided that a majority
of the Massmart shareholders at a properly constituted meeting of the
holders of relevant securities vote in favour of the resolution to waive
their right to have Walmart make such a mandatory offer ("Whitewash
Resolution").
Accordingly, Massmart shareholders will be asked at a general meeting to
approve the Whitewash Resolution.
The SRP has advised that it is willing to consider an application to
grant dispensation to Walmart in terms of the SRP Code, which would have
the effect of releasing Walmart from its obligation to make an offer for
all the issued shares in the share capital of Massmart, subject to the
SRP considering representations (if any) made by Massmart shareholders.
Prior to granting a dispensation in terms of the SRP Code, the SRP will
consider any objections or representations (if any) made by any Massmart
shareholder. Accordingly, any Massmart shareholder who wishes to object
to the dispensation shall have 14 (fourteen) calendar days from the date
of posting of the Scheme circular referred to in paragraph 17 below to
raise such an objection with the SRP. Objections should be made in
writing and addressed to the "Executive Director, Securities Regulation
Panel" at any one of the following addresses:
Physical: Sunnyside Office Park
1st Floor, Building B
32 Princess of Wales Terrace
(off St Andrews Road)
Parktown, 2193
Postal: PO Box 91833
Auckland Park
Johannesburg, 2006
Telefax: (27) 11 642 9284
If any submissions are made to the SRP within the permitted timeframe,
the SRP will consider the merits thereof and, if necessary, provide the
objectors with an opportunity to make representations to the SRP.
Thereafter, subject to the Whitewash Resolution having been approved at
the general meeting, the SRP will rule on Walmart`s application for
dispensation.
6. FUNDING, CASH CONFIRMATION AND WALMART UNDERTAKING TO SRP
The aggregate Offer Consideration will be funded through Walmart`s existing
cash resources and facilities. Walmart guarantees the obligations of Main
Street 830 (Proprietary) Limited as principal.
The SRP has received confirmation from N M Rothschild & Sons (South Africa)
(Proprietary) Limited and JPMorgan Chase Bank, N.A., Johannesburg branch in
accordance with Rules 2.3.2(b) and 21.7 of the SRP Code that resources are
available to Walmart sufficient to satisfy in full the aggregate Offer
Consideration.
Walmart has undertaken to the SRP that it will not acquire Massmart ordinary
shares at a price above the Offer Consideration, for a period of six months
from the Scheme Record Date, unless it is required in order to ensure that
Walmart does not dilute below the percentage of issued Massmart ordinary
shares which it will hold immediately following the implementation of the
Scheme and the Private Treaty Agreements.
7. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE OFFER ON MASSMART
The table below sets out the unaudited pro forma financial effects of the
Offer on Massmart`s audited earnings, headline earnings, fully diluted
earnings and fully diluted headline earnings per share, respectively, for the
financial year ended 27 June 2010, as well as on the net asset value per
Massmart ordinary share and net tangible asset value per ordinary share at 27
June 2010 assuming that the Offer is implemented.
The pro forma effect of the Offer on headline earnings is a reduction of
R301.1 million and included in this figure are:
- anticipated transaction costs, including advisors` fees, totalling R194.3
million. These costs are not tax-deductible, are once-off in nature and
will be incurred in the 2011 financial year;
- an aggregate IFRS 2 Share-based Payments charge of R118.9 million
relating to the accelerated vesting of options as outlined in paragraph
5.2. This charge is once-off in nature, and represents amortised charges
that would have been incurred in future years but which are now
accelerated and charged in the 2011 financial year; and
- other positive net adjustments of R12.1 million after-tax.
These pro forma financial effects have been prepared for illustrative
purposes only and, because of their nature, may not fairly present the
actual financial effects on Massmart.
The Massmart board is responsible for the preparation of the pro forma
financial information.
Pro forma
Before the effect of After the %
Offer the Offer Offer change
Attributable earnings 562.8 -173.4 389.4 -30.8%
per Massmart ordinary
share (cents)
Headline earnings per 567.2 -173.7 393.5 -30.6%
Massmart ordinary
share (cents)
Diluted attributable 538.5 -157.4 381.1 -29.2%
earnings per Massmart
ordinary share
(cents)
Diluted headline 542.7 -157.6 385.1 -29.0%
earnings per Massmart
ordinary share
(cents)
Net asset value per 1 722.0 52.9 1 774.9 3.1%
Massmart ordinary
share (cents)
Net tangible asset 681.9 111.9 793.7 16.4%
value per Massmart
ordinary share
(cents)
Number of Massmart 201 495 504 12 111 961 213 607 465 6.0%
ordinary shares in
issue
Weighted average 200 750 981 12 111 960 212 862 941 6.0%
number of Massmart
ordinary shares in
issue
Diluted weighted 209 816 898 7 638 099 217 454 997 3.6%
average number of
Massmart ordinary
shares
Notes and assumptions:
1. The Massmart financial information reflected in the "Before" column
has been extracted from the audited annual results of Massmart for
the year ended 27 June 2010.
2. The financial effects on the net asset value and net tangible asset
value have been based on the assumption that the implementation of
the Offer was effective on 27 June 2010. The financial effects on
the attributable earnings, headline earnings, fully diluted
attributable earnings and fully diluted headline earnings per
Massmart ordinary share, respectively, have been based on the
assumption that the implementation of the Offer was effective on 1
July 2009.
3. Included in the above is:
a) the cost of accelerating 51% of the unamortised IFRS 2 charge
at 27 June 2010, which is once-off in nature;
b) the estimated transaction costs associated with the Offer,
which is once-off in nature; and
c) the net STC impact on the dividends declared to external
shareholders during the year as well as the reduction relating
to the dividends associated with the Massmart "A" preference
shares which were effectively converted to Massmart ordinary
shares at the beginning of the year.
4. The change in weighted average number of shares represents the
number of Massmart ordinary shares issued to give effect to the
Scheme terms. This relates to the Employee Share Trust, BSS Trust
and the Thuthukani Trust.
5. The weighted average number of shares is adjusted for the Massmart
ordinary shares which would be issued in terms of the Scheme and
which is included in the calculation for the full year.
6. The above results in a reduction of the dilutive effect of the
weighted average number of options due to the implementation of the
ESOP Addendum, the BSST Addendum and the Thuthukani Addendum.
8. EFFECTS OF THE OFFER ON A MASSMART ORDINARY SHAREHOLDER
The table below sets out the effects of the Offer on a Massmart ordinary
shareholder:
Before the The Offer Premium*
Offer Consideration* (%)
(Rand) (Rand)
Closing price on 23 September 134.75 148.0 9.8%
2010 (a)
30-day VWAP to 23 September 124.16 148.0 19.2%
2010 (b)
Closing price on 26 November 141.70 148.0 4.4%
2010 (c)
30-day VWAP to 26 November 142.00 148.0 4.2%
2010 (d)
*The Offer Consideration is applicable to 51 out of every 100 Massmart
ordinary shares held on the Scheme Record Date
Notes:
a) The "before" column reflects the closing JSE market value per
Massmart ordinary share on Thursday, 23 September 2010, being the
trading day immediately preceding the publication of the cautionary
announcement regarding Walmart`s potential offer.
b) The "before" column reflects the 30-day volume weighted average JSE
market value per Massmart ordinary share calculated for the 30
trading days up to and including Thursday, 23 September 2010.
c) The "before" column reflects the closing JSE market value per
Massmart ordinary share on Friday, 26 November 2010, being the
trading day immediately preceding the publication of this firm
intention announcement.
d) The "before" column reflects the 30-day volume weighted average JSE
market value per Massmart ordinary share calculated for the 30
trading days up to and including Friday, 26 November 2010.
9. INTER-COMPANY AGREEMENTS BETWEEN WALMART AND MASSMART
Massmart and Walmart have agreed that as a condition to the Offer they will
enter into inter-company agreements on an arm`s length basis which will
govern, inter alia, Massmart:
- having access to Walmart`s procurement capability through a Buying Agency
agreement;
- being able to use Walmart`s technical skills and services through a
Technical and Consulting Services agreement;
- having access to and use of Walmart`s information technology hardware and
software through an Information Systems Division Services Support
agreement; and
- making use of the full range of Walmart`s retail, operational, supply
chain, marketing and merchandise skills and intellectual property through
an Intellectual Property Licence agreement.
Further details on these agreements will be included in the Scheme circular.
10. BREAK FEE
Subject to applicable law, Massmart undertakes that it will pay to Walmart an
amount in South African Rands equal to 1% of the aggregate Offer Consideration
(plus any VAT which may be payable in connection with the same) to compensate
it for, inter alia, management time, reputational damages, costs, fees and
other expenses incurred pursuant to the Offer (or Substitute Offer, if made):
10.1 if, following the making of the Offer or the Substitute Offer, the
Massmart board withdraws, or adversely modifies or qualifies, its
recommendation of the Offer or the Substitute Offer as contemplated in
paragraph 12; or
10.2 if, following the making of the Offer or the Substitute Offer, the Offer
(or the Substitute Offer) fails as a result of a higher offer being made
and succeeding for the acquisition of 35% or more of the Massmart
ordinary shares.
11. BOARD OF DIRECTORS AND MANAGEMENT
11.1 The Massmart board
To ensure that there is continuity and alignment of management between
Walmart and Massmart post implementation of the Offer or the Substitute
Offer, as the case may be, the parties have undertaken to procure that,
as soon as may be practically possible:
- the Massmart board will be reduced from its current 13 members to
nine members, which will comprise the current two executive
directors and seven non-executive directors, of which the majority
will be independent;
- Walmart will be entitled to nominate:
- three non-executive directors to the reconstituted Massmart
board; and
- an appropriate number of directors on each of the boards of
Massmart`s material subsidiaries;
- the Massmart board will either have an independent chairman or an
independent lead non-executive director, provided that the first
chairman of the reconstituted Massmart board will be independent for
a period of not less than 12 months following completion of the
Offer or the Substitute Offer, as the case may be; and
- a Walmart nominated non-executive director will be appointed to each
of the key board committees of Massmart and its material
subsidiaries, subject to applicable laws and regulations, including
the Companies Act.
11.2 Management
The emoluments of the Massmart directors and the service contracts in respect
of Massmart`s executive directors will not, save as contemplated below, change
as a consequence of the Offer or the Substitute Offer (if made).
Walmart has indicated that after the successful implementation of the Offer or
the Substitute Offer (if made), it intends to support and continue with the
existing mechanics to incentivise certain key members of Massmart`s senior
management and the executive directors through the Employee Share Trust, so as
to ensure continuity and alignment for the purposes of:
- maximising shareholder value; and
- building the leading retail franchise in Africa.
Details of how this will be achieved has not been finally agreed, but will
include, subject to Massmart`s and Walmart`s executive remuneration approval
processes, and disclosure in the normal course, incentivising those senior
management and executive directors through the granting of new options in
accordance with the existing terms of the Employee Share Trust (as has been
done hitherto), at the first allocation date after the implementation of the
Offer or the Substitute Offer, as the case may be (which is expected to be May
2011).
12. OPINIONS, RECOMMENDATIONS AND UNDERTAKINGS
Morgan Stanley South Africa (Proprietary) Limited ("Morgan Stanley") has been
appointed independently to advise the Massmart board as to the fairness from a
financial point of view of the terms of the Offer. Based on its independently
performed procedures and subject to the matters set out in the Morgan Stanley
letter, Morgan Stanley is of the view that, as at the date of the Morgan
Stanley letter, the terms of the Offer are fair from a financial point of view
to holders of Massmart ordinary shares, the Thuthukani Beneficiaries, the BSST
Beneficiaries and the ESOP Option Holders.
In the event that the Scheme is not proposed or fails and the Substitute Offer
is made, the Massmart board will appoint an independent financial advisor to
opine on the fairness of the Substitute Offer at that time.
The Massmart board has considered the terms of the Scheme and the Private
Treaty Agreements and has considered the opinion of Morgan Stanley, and is of
the opinion that the terms of the Scheme and the Private Treaty Agreements and
the Substitute Offer, if made (subject to receiving a favourable fairness
opinion in relation to the Substitute Offer) are fair to Massmart ordinary
shareholders, the Thuthukani Beneficiaries, the BSST Beneficiaries and the
ESOP Option Holders, respectively.
The Board:
- recommends that Massmart ordinary shareholders vote in favour of the
Scheme and, to the extent that the Massmart board members are holders of
Massmart ordinary shares, such Massmart board members undertake to vote
in favour of the Scheme;
- undertakes to facilitate the Scheme to the extent that a board of
directors will normally be required for purposes of the implementation of
a scheme of arrangement in terms of the Companies Act; and
- recommends that all Massmart shareholders vote in favour of the requisite
resolutions to be proposed at the general meeting, and to the extent that
Massmart board members are holders of Massmart ordinary shares, such
Massmart board members have undertaken to vote in favour of the requisite
resolutions.
13. SHAREHOLDER SUPPORT
Walmart has received irrevocable undertakings from certain institutional
shareholders to vote in favour of or to recommend to their clients to vote in
favour of, the Offer in respect of Massmart ordinary shares representing
approximately 35.2% of the existing issued ordinary share capital of Massmart.
Walmart has also received non-binding letters in support of the Offer from
other institutional shareholders in respect of Massmart ordinary shares
representing approximately 15% of Massmart`s existing issued ordinary share
capital. In addition, the directors representing in aggregate 1.4% of the
existing issued ordinary share capital of Massmart have undertaken to vote in
favour of the Scheme and the resolutions to be proposed at the general
meeting.
14. EXISTING HOLDING OF SECURITIES IN MASSMART
As at the date of this announcement, Walmart does not own or control, or have
the option to purchase, any securities in Massmart.
15. SPECIAL ARRANGEMENTS
Save as set out in this announcement:
- no arrangements, undertakings or agreements have been made between
Massmart and Walmart, or persons acting in concert with Massmart and
Walmart, in relation to the Scheme Shares; and
- no arrangements or undertakings (including any compensation arrangements)
which have any connection with or dependence on the Scheme exist between
Walmart (or any person acting in concert with Walmart) and any director
of Massmart or any person who was a director of Massmart within the
period commencing 12 months prior to the operative date, or any person
who is or was a holder of Massmart ordinary shares within the period
commencing 12 months prior to the operative date.
In November 2008, the four current black non-executive directors of Massmart,
being KD Dlamini, NN Gwagwa, P Langeni and DNM Mokhobo, each received 20 000
Massmart ordinary shares at a price of 1 cent per share. In terms of
contracts signed at the time, these shares could only be sold in equal
tranches at the third and fifth anniversaries of the initial sale. The
Massmart board has resolved that each of the four non-executive directors may
participate in the Scheme by selling 51% of their Massmart ordinary shares.
In addition, should any of the current black non-executive directors leave the
Massmart board as a consequence of the reduction and reconstitution of the
Massmart board (as contemplated in paragraph 11.1), those black non-executive
directors will be released from all restrictions and will be able to sell
their remaining Massmart ordinary shares at their discretion.
16. DOCUMENTATION
The Scheme circular providing further information on the Offer and containing
a notice of general meeting, a notice of Scheme meeting, an order of Court,
forms of proxy for each of the general meeting and Scheme meeting and a form
of surrender and transfer will be posted to Massmart shareholders in due
course as contemplated below.
17. IMPORTANT DATES AND TIMES
The Scheme circular containing full details of the Offer (including all terms
and conditions of the Scheme and the offers to Thuthukani Beneficiaries, BSST
Beneficiaries and ESOP Option Holders) will be posted to Massmart shareholders
on or about Thursday, 9 December 2010, following the Court granting approval
to the convene the Scheme meeting.
Shareholders should note the following important dates and times:
2010
Court grants approval to convene Scheme Thursday, 2 December
meeting
Notice of Scheme meeting released on SENS Thursday, 9 December
on
Notice of Scheme meeting published in the Thursday, 9 December
Business Day and Die Beeld on
Notice of Scheme meeting published in the Sunday, 12 December
Sunday Times on
Notice of Scheme meeting published in the Friday, 17 December
Government Gazette on
2011
Last day to trade Massmart ordinary shares Thursday, 6 January
on the JSE in order to be recorded in the
share register on the voting record date in
order to be eligible to vote at the scheme
meeting on
Voting record date on which Massmart Thursday, 13 January
ordinary shareholders must be recorded in
the Massmart ordinary share register in
order to vote at the scheme meeting at
17h00 on
Last day to lodge forms of proxy for the Friday, 14 January
general meeting by 11h00 on
Last day to lodge forms of proxy for the Friday, 14 January
Scheme meeting by 10h30 on
General meeting to be held at 10h00 on Monday, 17 January
Scheme meeting to be held at 10h30 or 10 Monday, 17 January
minutes after the adjournment or conclusion
of the general meeting which precedes the
Scheme meeting, whichever is later, on
Results of the general and Scheme meetings Monday, 17 January
released on SENS on
Anticipated date for Walmart to receive Tuesday, 18 January
formal dispensation from the SRP in respect
of the Whitewash Resolution
Results of the general and Scheme meetings Tuesday, 18 January
published in the South African press on
Scheme chairperson`s report lies open for Wednesday, 19 January
inspection from and including
Court hearing to sanction the Scheme at Tuesday, 1 February
09h30 or as soon thereafter as Counsel may
be heard on
If the proposed scheme is sanctioned:
Order of Court sanctioning the Scheme Wednesday, 2 February
lodged for registration with the Registrar
of Companies on or about
Results of the Court hearing to be released Wednesday, 2 February
on SENS on
Results of the Court hearing to be Thursday, 3 February
published in the South African press on
Finalisation date announcement to be Friday, 4 February
released on SENS (subject to the fulfilment
of all conditions precedent) on
Finalisation date announcement to be Monday, 7 February
released in the South African press
(subject to the fulfilment of all
conditions precedent) on
Last day to trade Massmart ordinary shares Friday, 11 February
on the JSE in order to be recorded in the
share register on the Scheme Record Date on
Massmart ordinary shares trade "ex" the Monday, 14 February
Scheme consideration under a new ISIN. The
Massmart JSE share code and abbreviated
name remain the same
Scheme Record Date to determine Friday, 18 February
participation in the scheme at 17h00 on
Operative date from which the Scheme Monday, 21 February
consideration will be made available to
certificated Scheme participants (if the
duly completed form of surrender and
transfer and the documents of title are
received by the transfer secretaries on or
prior to 12h00 on the Scheme Record Date,
or failing that, within five business days
of receipt of the duly completed form of
surrender and transfer and relevant
documents of title by the transfer
secretaries)
Certificated shareholders will have their Monday, 21 February
replacement balance share certificates
posted on, or within five days after
(provided the old share certificates have
been surrendered by 12:00 on the Scheme
Record Date)
Dematerialized Scheme participants will Monday, 21 February
have their accounts held at their CSDP or
broker credited with the Scheme
consideration and updated with the balance
of shares on the operative date, which date
is expected to be
Operative date of the Scheme, from the Monday, 21 February
commencement of business on
Notes:
1. All times indicated above are South African times.
2. The dates and times are not final and are subject to the fulfilment of
the Scheme Conditions, in particular, receipt of all regulatory
approvals. Any change to the above dates and times will be agreed upon by
Walmart and Massmart and advised to Massmart ordinary shareholders by
notification on SENS and in the South African press.
3. Share certificates issued prior to Friday, 11 February 2011 under the old
ISIN of ZAE000029534 may not be dematerialised or rematerialised after
Friday, 11 February 2011.
18. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Massmart ordinary shareholders are advised that caution is no longer required
when dealing in Massmart securities.
Johannesburg
29 November 2010
Joint Financial Advisors to Legal Advisor to Massmart
Massmart Edward Nathan Sonnenbergs
Deutsche Bank
Goldman Sachs International
Sponsor to Massmart Communications Advisor to
Deutsche Securities (SA) (Pty) Massmart
Limited Brunswick
Independent Financial Advisor to Independent Reporting
the Massmart board Accountants to Massmart
Morgan Stanley South Africa (Pty) Deloitte & Touche
Limited Registered Auditors
Joint Financial Advisors to Walmart Legal Advisor and Joint Tax
Rothschild Advisor to Walmart
JPMorgan Webber Wentzel
Joint Tax Advisor to Walmart
Ernst & Young
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
Certain statements within this announcement may be considered forward looking,
including without limitation those statements concerning timing; fulfilment of
Scheme Conditions and implementation of the Offer; the value of the Offer
Consideration; expectations regarding operating and financial performance; and
other benefits anticipated from the Offer. Although Massmart and Walmart
believe that the expectations reflected in such forward looking statements are
reasonable, no assurance can be given that such expectations will prove to be
correct.
Neither Massmart nor Walmart undertakes any obligation to publicly update or
revise any of the information given in this announcement that may be deemed to
be forward looking.
ADDITIONAL INFORMATION
Deutsche Securities (SA) (Proprietary) Limited, a non banking member of the
Deutsche Bank Group ("Deutsche Bank") is acting for Massmart and no one else
in connection with the Offer and will not be responsible to anyone other than
Massmart for providing the protections afforded to clients of Deutsche Bank or
for providing advice in relation to the Offer.
Goldman Sachs International, acting through its Johannesburg branch, which is
authorised and regulated in the United Kingdom by the Financial Services
Authority and authorised in the Republic of South Africa by the Financial
Services Board ("Goldman Sachs International"), is acting for Massmart and no
one else in connection with the transaction referred to herein and will not be
responsible to any person other than Massmart for providing the protections
afforded to clients of Goldman Sachs International or for advising any other
person in relation to such transaction or any agreement or transaction
referred to in this document.
Morgan Stanley South Africa (Pty) Limited ("Morgan Stanley") is acting as
independent financial advisor to Massmart and no one else in connection with
the Offer and will not be responsible to anyone other than Massmart for
providing the protections afforded to the clients of Morgan Stanley South
Africa (Pty) Limited nor for providing advice in relation to the Offer, the
contents of this announcement or any other matter referred to herein.
N M Rothschild & Sons (South Africa) (Proprietary) Limited ("Rothschild") and
J.P. Morgan Securities LLC, acting directly and through its affiliate JPMorgan
Chase Bank N.A., Johannesburg branch (collectively "JPMorgan") are acting as
financial advisors to Walmart and no one else in connection with the Offer and
will not be responsible to anyone other than the Board of Directors and Senior
Management of Walmart for providing the protections afforded to clients of
Rothschild and JPMorgan in connection with the Offer or for providing advice
in relation to the Offer.
Date: 29/11/2010 08:00:02 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
